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​Here's Where And Why VBI Vaccines Fits Into the Hepatitis B Picture

VBI Vaccines, Inc. (VBIV) just announced that the company has been added to both the Russell 2000 and the Russell 3000 Indexes. This is a company that I have highlighted a couple of occasions in the past (here and here), noting in each that it has the potential to revalue considerably to the upside if one of its numerous pipeline assets makes it to commercialization in the US.

The lead of said pipeline of assets is actually already approved outside the US, with regulatory approvals in 15 countries. It's the US market (and a couple of others, which I will highlight in more detail shortly) that provides the real revenue potential, however, and as such, it's said markets that shareholders are really watching is indicative of a forward valuation for the stock.

A week or so prior to the above-mentioned Index listings, management put out a major release relating to the US advance of the lead asset in question. The release detailed a major and key step forward, but markets remain flat on the news, suggesting there is some degree of misunderstanding as to the implications of the development. Further, there seems to be some confusion as to how said asset fits into its target indication against a backdrop of a range of competitor assets.

With this in mind, and in light of the latest Russell listings (which I see as potentially driving some speculative volume towards VBI), here is an attempt to clear up any market misunderstanding as to what is happening and what's important going forward.

The asset in focus is called Sci-B-Vac and it's a hepatitis B vaccination. I went into the vaccine in detail as part of this coverage back in April, so readers looking for a primer on the science should take a look at that piece before reading on. For those not wanting to click away, however, here is a brief introduction.

It is a third-generation prophylactic vaccine, with prophylactic here referring to the asset's intended preventative qualities (as opposed to it being designed to treat a chronic form of the infection). With Sci-B-Vac, VBI has taken the antigen used in current vaccine formulations (so-called second-generation vaccines) and bolstered it with two additional antigens. The idea is that the more antigens a vaccine is able to present to the immune system, and assuming these antigens are representative of the antigens expressed by the virus against which the vaccine is trying to induce immunity, the quicker seroprotection will occur and the higher the degree of said protection once administration is complete.

With the drug already having been administered thousands of times globally, there is plenty of evidence supportive of clinical benefit and safety and VBI is looking to combine this data with some freshly generated phase 3 data to support registration applications in the above-mentioned US, as well as in two other key markets for this company – Europe and Canada.

The latest news details the outcome of a pre-IND meeting with the FDA, which suggests that VBI will be able to conduct one global phase III trial and use the data from said trial (combined with the existing, legacy data) to underpin an application for approval in all three regions.

The news comes subsequent to two other releases detailing similar outcomes from pre-trial meetings in Europe and Canada and completes the trio of regulatory agency nods from VBI's perspective in this development program.

The takeaway from this latest update, then, is that the program is now full steam ahead in three major markets and that there are a number of key catalysts to watch between now and the end of 2018 – trial initiation, data readouts and registration applications in the markets in question being the primaries as things stand.

All this is great, but it means very little without an understanding of where this drug fits into the hepatitis B space as a whole. It is in this lack of understanding that I believe is rooted an undervaluation of VBI.

The thing is, there are existing standard of care (SOC) hepatitis B vaccines on the market, both generic and branded, that do an okay job of protecting individuals from HBV infection. That is, they induce seroprotection in a large portion of the target population into which they are introduced.

There are also, however, substantial gaps in the efficacy of these current SOCs.

Elderly patients, for example, have far lower rates of response to standard HBV vaccinations than younger, adult patients. As little as one-third of over 65s are able to generate an immune response sufficient to be protective against future infection when given a second generation vaccine. Further, intense dosing regimens (second generation vaccines require three doses spread over a period of months to be effective) reduce this efficacy rate. Evidence suggests that only 16.1% of adults aged 50+ have received the recommended three or more doses of a hepatitis B vaccine – the dose generally necessary to induce protection.

And it is not just the elderly for which current options fall short. Any individual that has fallen foul of immunosuppression (so, obese patients, patients with diabetes, patients with conditions like chronic kidney disease) also exhibit a reduced response rate to vaccines like Engerix-B, GlaxoSmithKline plc (ADR) (GSK)'s asset in this space, with the reduced response based on immunosuppression and its impact on the immune system's ability to generate antibodies that target the HBV virus.

So where does VBI, and specifically, Sci-B-Vac, fit into this?

Because the vaccine is third-generation, and specifically because it uses three antigens as opposed to two (and also incorporates mammalian cells as opposed to the second-generation standard of plant cell construction), the vaccine is potentially able to increase the immune system's ability to generate antibodies across a wider spectrum of those representative of the antigens expressed by the virus. A wider spectrum of antibodies should translate to an increased immunogenicity, meaning even patients with a suppressed immune system should be able to develop sufficient seroprotection against HBV, subsequent to Sci-B-Vac administration.

The importance of this, then, is that, with Sci-B-Vac, VBI is not looking to compete with drug's like Engerix-B directly – at least not initially.

If the company can demonstrate increased immunogenicity in immunosuppressed patients, said immunosuppressed patient population will be a relatively easy, quick and large population to target with very little competitive pressure from the currently available assets in the space.

This is exactly what VBI already does with the drug in Israel, one of the countries in which it is approved. Sci-B-Vac is administered to nonresponders to SOC; in other words, anybody who doesn't respond to Engerix-B (read: elderly, diabetes patients, etc.) get Sci-B-Vac as a secondary vaccine. It's also used in a large number of newborns, which highlights an expansion population for Sci-B-Vac in the US eventually, but that's a longer-term goal.

For now, it's all about cornering the immunosuppression market.

And that's where this company, and this asset, fits into the wider picture.

VBI isn’t going to have to pitch its asset against that of healthcare behemoths like GSK and Merck & Co., Inc. (MRK) to start generating revenues in the US, Europe and Canada. All the company has to do is demonstrate that Sci-B-Vac can be a valid option for immunosuppressed patients and there's enough potential in terms of dollar sales volume to justify a dramatic upside revaluation on approval.

So what's next?

Now it's all about the pivotal trial. I'll be watching closely for any kind of update as to when we should see the trial initiate, but for now, we know that the company intends to submit the pre-trial applications in the three target regions this year, suggesting a 2018 trial start.

Disclosure: I have no positions in any of the stocks mentioned in the article and do not intend to open any positions near term.

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